Date: Wed, 5 Aug 2009 22:57:22 -0700 From: Norm Matloff <matloff@cs.ucdavis.edu> To: Norm Matloff <matloff@laura.cs.ucdavis.edu> Message-ID: <20090806055722.GA16865@laura.cs.ucdavis.edu> To: H-1B/L-1/offshoring e-newsletter A couple of weeks ago, researchers at George Mason University and the federal Small Business Administration released a report titled, "High-tech Immigrant Entrepreneurship in the United States." The lead author, David Hart, announced the release of the report in the Industry Studies listserv. As the findings of the report indicate a lower level of tech entrepreneurship than found in recent work by Vivek Wadhwa, Vivek wrote a response, after which Hart replied. I'm enclosing that exchange below, along with the other comment in the listserv, by Roger Bohn of UC San Diego. As you might expect, that exchange makes for interesting reading, especially the second posting by Hart. But here I will focus on my own comments on the report. As with the recent papers by Bill Kerr and Jenny Hunt, my principle criticism is that they do not take into account the displacement of U.S. citizens and permanent residents by foreign workers. See http://heather.cs.ucdavis.edu/Archive/KerrLincolnRejoinder.txt and http://heather.cs.ucdavis.edu/Archive/JenniferHunt.txt One cannot interpret the existence of x% of foreign-founded tech businesses as a net gain to the nation of tech firms, as we also lose many potential businesses that may have been founded by Americans had they not been pushed out of the field, or discouraged from entering it in the first place. To be sure, Hart et al do briefly recognize that displacement exists (e.g. p.17) but protest that "we cannot re-run history to explore the counterfactual in which the border is closed," and in the end decide that "our data show that immigrants play a crucial role in this vital economic activity [high-tech]," an unwarranted conclusion in view of the displacement. One of the most interesting analyses in the report concerns national origin of the immigrant tech entrepreneurs. Here are the ones with a 2% share or greater: India 15.9% UK 10.0% Canada 6.0% China 6.0% Japan 6.0% Germany 5.2% Cuba 3.2% Iran 2.8% Russia 2.8% France 2.4% Mexico 2.0% Vietnam 2.0% Now, let's compare this to the breakdown for computer-related H-1Bs (the data are a bit old, courtesy of Michael Hoefer, INS, July 9, 2001, but should be fairly close to today's figures): India 64.8% China 8.2% Philippines 2.3% Canada 2.0% The difference is striking. Among the computer-related H-1Bs, one country is overwhelmingly dominant, while in the entrepreneurship data, no country is dominant. And even more importantly, India and China play a far smaller role in the entrepreneurship data than in the H-1B figures. In other words, the industry lobbyists' claim that the H-1B program is the engine driving immigrant tech entrepreneurship is way off the mark. (None of the tech firm founders cited by the lobbyists, e.g. Andy Grove and Sergey Brin, originally came to the U.S. as an H-1B or foreign student.) To put it another way, the data show that the impact of the European and Canadian immigrants is far stronger than their representation in the H-1B data. Note that this seems somewhat related to Prof. Hunt's finding that the European immigrants make more money, and to my findings that that the only nationalities of foreign workers who have a tendency to be "the best and the brightest" are Europeans. There are of course some outstanding workers from Asia too, but the industry lobbyists' claim that the reason most H-1Bs are Asian is the supposedly superior educational systems in Asia does not jibe with the data. There are issues of the type of business that is founded. In the first Saxenian paper, she noted that 36% of the Chinese-owned "tech" firms in Silicon Valley were in the business of "Computer Wholesaling," meaning that they were simply assemblers of commodity PCs, with no engineering or programming work being done. Clearly these should not be considered a plus in discussions like this, nor should the Indian "body shops." The listserv discussion follows below. Norm From: David M Hart <dhart@gmu.edu> Subject: [Industry Studies Association] New study: High-tech Immigrant Entrepreneurship in the United States Dear colleagues: It's my pleasure to announce the release of a new study of immigrant entrepreneurs in the U.S. high-tech sector, which I co-authored with Zoltan Acs and Spencer Tracy. The central finding of the study is that about 16% of the nationally representative sample of high-impact, high-tech businesses that we surveyed count at least one foreign-born person among their founding team. The report was sponsored by the U.S Small Business Administration and can be downloaded from this URL: http://www.sba.gov/advo/research/rs349tot.pdf A research summary prepared by SBA is here: http://www.sba.gov/advo/research/rs349.pdf Sincerely, David Hart Associate Professor School of Public Policy George Mason University From: Roger Bohn <Rbohn@ucsd.edu> Subject: [Industry Studies Association] High-tech entrepreneurs are no more foreign than the US population at large? I find David's study fascinating. But here's why. By re-parsing his data, and comparing it with US Census data, we get the result that his sample of founders is about like the rest of the US, in percentage of non-native birth and perhaps even current citizenship. Only about 3 percent of the founders of high-impact, high-tech companies are foreigners (60 out of 2034). 97 percent are US citizens, and specifically 87 percent are US-born, while the other 10 percent are naturalized US citizens. Furthermore, most foreign-born founders lived in the US for decades. These founders are statistically very similar to the average US population in terms of birth and immigration status. I have my data sources and more discussion at my (extremely new) blog: http://art2science.org Comments welcome, there or on this mailing list. Of course, there are many nuances of even the statistical part of the analysis. Roger From: Vivek Wadhwa <Vivek@Wadhwa.com> Subject: RE: [Industry Studies Association] High-tech entrepreneurs are no more foreign than the US population at large? Roger, it's not that simple. There are many issues which make the comparisons you cite from the Hart and Acs paper invalid. Here are a few: 1. DEFINITION OF "HIGH-TECH" The researchers created their own definition by taking an antiquated BLS definition, subtracting the largest industry group in the BLS definition and including their own SIC codes. The resulting definition of "high-tech" includes -- cigarette, crude petroleum and natural gas, pulp mills, soap, paints, agricultural chemicals, reclaimed rubber, photographic equipment and supplies, etc. What do these manufacturing industries have to do with what we, today, call "tech"? Plus I would really be surprised if you or any other academic would consider the mining, paper or chemical industries to even be "high-impact" let alone "high-tech"? Maybe these industries did make an impact on the economy at the turn of the century and there are some old definitions which include these, but let's get real here. 2. DATAFRAME USED/AGE OF COMPANIES SURVEYED The dataset they used is rarely used by academic researchers for understandable reasons. It is "Corporate Research Board's American Corporate Statistical Library" and is derived from Dunn and Bradstreet data. The researchers selected companies which doubled sales/employment from 2002-2006 from this dataset. The problem is that this includes companies which are decades old and largely irrelevant to the policy arguments which the report seeks to make. And it turns out, 70% of the companies surveyed were over 10 years old and 12% were more than 30 years old. The world is changing rapidly and we need to look at what is happening today, not decades ago. By the way, does anyone on this list think that a 30-year old cigarette manufacturer or mining company is relevant to today's debate about skilled tech immigrants? 3. DEFINITION OF FOUNDER/METHODOLOGY The researchers define a company founder as "the person or people who owned part of the firm when it first began to cover all salaries and wages". This would mean that any seed investor including friends and family and venture capitalists were "founders". They called companies and said they wanted to speak to anyone "who knows about the founding history of the company". This person was then asked about the company's R&D labs, patents filed, sponsored research, etc. and then the citizenship, ownership, education of the " 5 most important founders"., etc. Anyone who knows about tech companies knows that founders don't stay this long and corporate memory is very short. How could the research team possibly have obtained information such as how the founding team came together, education level and history of each founder, year each founder came to the U.S. and obtained citizenship -- from 30 year old companies? Even in 10 year old companies, hardly anyone knows this. I personally founded 2 technology companies and didn't even know all this about my co-founders the day I founded the companies! 4. RESPONSE-RATE STATISTICS The report says that of the total population of 24,000 companies in their original dataset, they surveyed 2,668. It says "1,415 provided completed responses, giving us a response rate of 53%". This is misleading -- the 53% was a "survey completion rate", not a "response rate". I would be really interested in learning what percentage of the total population of companies contacted actually took the survey. I believe that in a survey like this, a high-response rate is critical to the credibility of the resulting analysis. 5. VALUING THE CONTRIBUTION OF IMMIGRANTS In a high-technology startup, there are only 2 people who are really critical to the success of the venture -- the CEO and the CTO (or lead technologist). They are equally important and can be the same person (like Bill Gates), but one can't succeed without the other. (Key product developers are also important, but these are not always company founders). This report counts anyone who provided seed funding as a founder and gives them equal importance. Then it compares native founded companies with immigrant founded. The native founded company has to have all natives, but the immigrant founded company can have just one foreign-born and the rest can be natives. How is this a meaningful comparison? So what if the accountant or lawyer was an immigrant? How can you make policy recommendations based on this comparison? As a result of these flaws, the analysis produces some really incredible findings: 1. Have a look at Figure 1 in the report. If you exclude Mining, Paper, Chemicals, Machinery, Transportation Equipment, and look at the industries which could realistically be considered "high-technology" -- Electronics, Instruments, Communications Equipment, Business Services, and Engineering Services, you see an amazing trend. In every one of these industries, immigrant founded companies greatly outnumber the native founded companies! How can this be?? It seems the report finds that the vast majority of "high-impact" "real high-tech" companies created over the last few decades in the U.S. have immigrant founders. 2. They found that Indians were the largest of the immigrant founding groups and as you noted below, the researchers claimed that most foreign-born founders lived in the U.S. for decades. Yet if you look at census data (http://www.census.gov/prod/cen2000/doc/sf4.pdf), you see that as of 2000, 54% of the India-born in the U.S. came to the U.S. after 1990, and an additional 27.8% arrived from 1980-1990. Only 18.2% were here for "decades". It is the same with many other Asian immigrant groups. So something isn't right with the Hart report's findings. 3. They found that 30% of immigrant founded companies had women founders vs. 20.5% of native founded. This itself would be headline news if it was the reality. I happen to agree with the conclusions and recommendations, so have not made negative comments to the press about this report. But I would caution academics in relying (and staking their reputations) on such flawed data and analysis. We need to get more academics doing the type of research such as what brilliant scholars like Robert Fairlie have done with Kauffman's Firm Survey, Steven Davis, John Haltiwanger have done with the Business Dynamics Statistics and Bill Kerr, Jenny Hunt and Marjolaine Gauthier-Loiselle have done with U.S. patent and census data. Regards, Vivek Wadhwa Visiting Scholar, School of Information, UC-Berkeley Associate Director, Center for Entrepreneurship and Research Commercialization, Duke University Senior Research Associate, Labor and Worklife Program, Harvard law School Columnist, BusinessWeek From: David M Hart <dhart@gmu.edu> Subject: [Industry Studies Association] Response to Wadhwa regarding high-tech immigrant entrepreneurs Dear colleagues: Vivek Wadhwa harshly criticized our recent report on this listserv. (The report can be found at http://www.sba.gov/advo/research/rs349tot.pdf.) In what follows we respond in detail to his critique. For those who may not want to read this post in full, we summarize our response here. Most of Wadhwa’s criticisms should be ignored by scholars. He makes elementary mistakes of math and methodology. He frequently makes assertions that have no foundation. He exaggerates and demeans, ultimately impugning no one but himself. We believe our study provides a better estimate of high-tech immigrant entrepreneurship, as those terms are ordinarily used by scholars, than Wadhwa et al. 2007. However, there is room for the figures in the two studies to be reconciled, depending on one’s definitions of the key terms and what one thinks the relevant population of firms is. We would be more than happy to entertain a serious scholarly debate on this subject and look forward to engaging in one. We refer at several points in our response to the Kauffman Firm Survey (KFS). We couldn’t hope to match on our modest budget the methodological sophistication and level of effort that this multi-million dollar project achieved. But we reference it as the gold standard for survey research on entrepreneurship. DEFINITION OF HIGH-TECH. We use a standard definition of high-technology found in the economics literature, based primarily on the ratio of R&D employment to total employment and referencing BLS data. The KFS uses the same definition, although it defines three groups of SICs, high-technology, medium technology, and all other industries; our high-tech category basically combines KFS’s high- and medium-tech categories, as we state in the report. Wadhwa et al 2007 use the following definition: “the main work of the company is to use technology or engineering to design or manufacture products or services.†The only SICs in our high-tech category that are not in KFS’s high- and medium-tech categories are 303 (reclaimed rubber), 374 (railroads), 489 (communication services, n.e.c.), and 874 (management and public relations). 303 and 374 account for less than .05% of the firms in our population. 489 accounts for almost 1%; this group may include emerging ICT-based service sectors that fit conventional notions of high-tech. But the key point is that these 3 SICs are too small to affect the results that we report in any significant way. 874 is a special case. As we describe in the report, it would have dominated our results had we left it in, accounting for more than a third of all firms in our population. We judged it better to omit this industry and tell the reader that we did so. Perhaps others might find it interesting to explore the role of foreign-born entrepreneurs in management and public relations at some future date. We report the distribution of immigrant-founded and native-founded firms by broad sector (manufacturing vs. services) in Table 3 and by two-digit SIC in Figure 1. In both comparisons, the patterns are similar between the two groups of firms. Wadhwa misunderstands Figure 1 in his comment. Each bar in the graph shows the share of IFCs or NFCs in that sector divided by the total number of IFCs or NFCs respectively. Because there are many more NFCs than IFCs in the sample, there is no sector in which IFCs out-number NFCs. USE OF DUN & BRADSTREET DATA. D&B is the best source from which a sample like ours could have been pulled. KFS used D&B for its sample. Indeed, Wadhwa et al. 2007 used D&B as well. Census and IRS data are undoubtedly richer sources, but they are only made available to researchers under strict confidentiality conditions, and it is not possible to identify individual firms for survey research purposes. AGE OF FIRMS. A prior study by two of the co-authors of this study (Acs, Parsons, and Tracy 2008) shows that a small fraction of firms account for the bulk of net job creation in the U.S. One surprise in that study was that the age range of these firms is wide. It seems that there are relatively old firms as well as young ones that for some reason or another “catch fire†and grow rapidly for at least several years. That growth is happening today, not thirty years ago, as Wadhwa implies. In any case, as Table 4 reports, there is no statistical relationship between age of firm and immigrant founding in our sample. DEFINITION OF FOUNDER. For the most part, we let our respondents identify the firm’s founders without a definitional prompt. However, if the occasional respondent asked for a definition, the one that our survey contractor supplied, which Wadhwa quotes in his post, is the one that is used in the Panel Study of Entrepreneurial Dynamics (PSED). Paul Reynolds, the PI for PSED, is one of the country’s leading authority on survey research related to entrepreneurship and has invested considerable effort in creating this definition. We point out in the report, as Wadhwa acknowledges in his comment, that CEOs and CTOs who were the subjects of his study are not necessarily founders. The Stanford Project on Emerging Companies, for instance, found that about half of founders were not employed in either of these roles. We thus come to a semantic question: who is an “entrepreneur†– the founders about whom we asked or the senior executives about whom Wadhwa et al 2007 asked? The vast majority of scholars equate “entrepreneur†with founder, although more encompassing definitions that include senior executives can be found. We believe that firm founders and senior executives perform different functions in society – both important, but different. They must be treated separately if we are going to understand firms and economies. RESPONSE RATE. We used the response rate calculator made available on-line at aapor.org by the American Association for Public Opinion Research (AAPOR). That calculator provides 14 alternative definitions. We use the one that we thought our colleagues and readers would find most intuitive: of those firms that our survey contractor actually reached, what proportion finished the survey? Technically, this is the “cooperation rate.†(All four definitions of the cooperation rate in the AAPOR calculator yield the same value, 53%, for our sample.) If we include all of the other dispositions of phone numbers called by our survey contractor, such as fax numbers, busy signals, non-working numbers, and the like, the rate drops to between 29% and 34%, depending on which definition (AAPOR 1-4) is used. We were surprised to get such a high response rate, however calculated. Survey researchers whom we consulted before we began the project told us to expect a response rate of 10% or even less. (One of the most intimidating things that we learned was that the KFS had made 375,000 phone calls to obtain 3,782 completed interviews.) But this discussion is something of a digression. The response rate does not determine whether a survey sample is representative. A representative sample is unbiased. We addressed bias by validating the sample against the population data that we had in hand from D&B. We also used the population data to weight the observations in the two regressions that we report. And we obtained a large enough sample to keep random error low. Of course, it is always possible that there is an unknown variable that makes the respondents different from the non-respondents. That is a hazard in all survey research. But we did what could reasonably be done to have confidence that our sample is representative: worked with a professional survey research organization, validated the data, and obtained a large sample. We certainly believe our data collection method is more reliable and valid than that described on p. 9 of Wadhwa et al. 2007. POLICY RECOMMENDATIONS. We don’t make policy recommendations in this report. We seek to add information that is relevant to the policy debate. INDIAN FOUNDERS. We report (Table 20) that 16% of the founders in our sample were born in India. Table 16 shows that 25% of the founders in our sample had been in the U.S. for 15 years or less, and another 25% had been here for 25 years or less. There’s certainly no mathematical problem here with the timing of Indian immigration to the U.S. We do think the issue of mapping the country of origin and timing of firm founding onto the changing demographics of immigration is a good issue for further study, and we have been working on that. FEMALE FOUNDERS. This issue is also worthy of further study. Wadhwa does not state a reason for doubting our findings but simply makes unfounded assertions. THE COMMUNITY OF SCHOLARS. We certainly agree that the growth in research on the role of the foreign born in the U.S. innovation system and in U.S. entrepreneurship is an excellent development. We look forward to participating in further discussions with those scholars, who, like us, take care in designing and carrying out research and who engage in serious and evidence-based debate. WADHWA’S RESTRAINT IN MAKING NEGATIVE COMMENTS ABOUT US TO THE PRESS. We are disappointed that Wadhwa did not discuss our work with reporters. We would have been happy to rebut his views, even though we understand that the rules of the game are different in the media than in the scholarly community. As the old saying goes, “any publicity is good publicity.â€